Wal-Mart Stores Inc.'s board was sued by a California pensionfund over its mishandling of allegations that the world's largestretailer bribed Mexican officials to help fuel the company's growthin the country.

Wal-Mart directors and executives responsible for overseeing thecompany's Mexican unit should reimburse the Bentonville,Arkansas-based retailer for damages the chain suffered as a resultof the bribery scheme, lawyers for the California State TeachersRetirement System said in a lawsuit filed yesterday in DelawareChancery Court in Wilmington.

“The board's prolonged failure to address detailed and credibleallegations of criminal activity” has caused the retailer“substantial harm,” the pension fund said in the complaint.

Both U.S. and Mexican prosecutors said last month they startedprobes of the bribery allegations, first reported by the New YorkTimes. The retailer's growth in Mexico has turned the company intothe country's largest private employer with more than 209,000employees.

The newspaper reported that officials of Wal-Mart's Mexican unitpaid the bribes to win government building permits for stores. Oncethe bribery allegations came to light, company officials failed toact on the results of an internal probe or inform authorities aboutthe allegations, the California pension fund said in the suit.

“We are reviewing the lawsuit closely and thoroughlyinvestigating the issues that have been raised,” David Tovar, aWal-Mart spokesman, said yesterday in a telephone interview.

It's the second so-called derivative suit filed in state courtin Delaware by a Wal-Mart investor over the Mexican bribeallegations in the past two weeks. Another investor filed aChancery Court suit on May 2 seeking records about the board'shandling of the allegations.

Under derivative suits, any recovery would be returned toWal-Mart's coffers rather than awarded to individualshareholders.

The California pension fund contended in yesterday's filing thatWal-Mart officials may have violated the U.S. Foreign CorruptPractices Act of 1977 and other anti-bribery statutes in connectionwith the payments to Mexican officials.

Twenty percent of the company's more than 10,000 storesworldwide are in Mexico, following Wal-Mart de Mexico SAB's rapidgrowth in the past 10 years.

Whistle-Blower

Once the bribery allegations were flagged to company officialsby a whistle-blower in late 2005, executives within the Mexicanunit sought to cover up the payments, the pension fund said in thesuit.

Wal-Mart officials never disclosed the bribery allegationspublicly or alerted law-enforcement officials until the New YorkTimes reported the claims last month, according to thecomplaint.

The case is California State Teachers' Retirement System v.Wal-Mart Stores Inc., CA No. 7490, Delaware Chancery Court(Wilmington).

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.